A new report by ASIC highlights lenders providing interest-only mortgages need to lift their standards to meet consumer protection laws.
“ASIC review of more than 140 consumer loan files from both bank and non-bank lenders found:
In 40% of files reviewed, the affordability calculations assumed the borrower had longer to repay the principal on the loan than they actually did. “The practices can expose borrowers to not being able to afford their loan repayments in the future, particularly for interest-only loans, which have much higher repayments after the initial interest-only period ends”. ASIC says following the review, all 11 lenders have changed their practices or have committed to implementing the necessary changes in the coming months. ASIC deputy chair Peter Kell says while interest-only loans may be a reasonable option for some borrowers, lenders must have a robust process in place for assessing a customer’s ability to afford a loan – taking into account the increased repayments once the interest-only period ends.”
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